Massive provision for loans and other losses dent NTB first quarter profits

Higher provisions made for possible loan defaults and other losses likely arising from financial assets dented the profits at Nations Trust Bank PLC (NTB) in the three months to March 2022 although the core banking results were supported by stretched margins amid rising interest rates amid moderating growth.  
The bank with assets of little over Rs.436 billion reported earnings of Rs.5.23 a share or Rs.1.58 billion in the January - March quarter, down 12 percent from the same period in 2021 when the earnings were Rs.5.97 a share or Rs.1.79 billion supported by a resurgent economy at the time. 
The bank’s profits were significantly impaired by the provisions made at gargantuan proportions for likely losses from loans and other financial assets, mainly held in foreign currency denominated instruments issued by the government. 
The bank set aside Rs.2.3 billion in total provisions, sharply higher from Rs.644.3 million in the same period last year. The provisions consisted of Rs.1.31 billion for loans and advances and Rs.990.7 million for other financial assets, a massive increase from Rs.653.3 million and Rs.21.7 million in the comparative period in 2021. 
The bank said the surge in provisions against loans and advances came predominant due to the, “negative flows from some moratorium loans during the current year”. In reference to the provisions made for other financial assets, the bank said its investments in foreign currency denominated government securities accounted for only 3.6 percent of its total assets as of March 2022. 
The fair value gains made on foreign exchange derivatives of the bank was nearly offset by the revaluation losses made on its foreign currency assets and liabilities, revalued at the foreign exchange rate stood at the quarter-end which was at least 50 percent weaker than the start of the year. 
NTB reported Rs.9.3 billion in net trading gains compared to Rs.1.2 billion a year ago and this was nearly offset by the Rs.8.3 billion in net other operating income consisting of revaluation losses and perhaps the foreign exchange impact of the impairments. 
This revaluation of the assets and liabilities at the balance sheet data inflated an otherwise modest growth in loans and deposits in the three months. 
For instance, the bank’s loans grew by Rs.30 billion or 11.6 percent but the rupee loans rose by Rs.6.6 billion or 3.0 percent. Meanwhile the deposits climbed Rs.26.9 billion or by 10.0 percent, although rupee denominated deposits rose by only Rs.2.0 billion or 0.92 percent. 
The rising interest rates and inflated asset base helped the bank to report an extremely robust 46 percent growth in net interest income to Rs.4.71 billion in the three months. Meanwhile the fee incomes also registered a solid growth of 21 percent to Rs.1.86 billion. 
These conditions helped the bank to stretch its margin to 4.95 percent from 3.85 percent in the three months. NTB remains well capitalised and liquid compared to regulatory minimum standards and the bank’s Chief Executive Officer Hemantha Gunetilleke reassured of the bank’s strength and resilience in weathering the current crisis.
“Supported by the strong capital base, along with healthy liquidity buffers and the robust risk management models, we as a bank, are confident and equipped to withstand any potential impact caused by further macro-economic challenges,” 
he said.